This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, click the "Reprints" link at the bottom of any article.

October 19, 2012

IRS Raises 401(k) Contribution Limits

Another $500 a year is meant to keep pace with rising inflation

More On Tax Planning

from The Advisor's Professional Library

Charitable Giving
Charitable giving can reduce your clients’ tax liabilities. However, the general and verification rules for the deduction of charitable gifts must be understood in order to take full tax advantage of such gifts.

Annuities: Variable Annuities
Annuities are hot. The tax rules vary with the circumstances. Advisors must be aware of these intricacies when discussing annuities with clients.

Saving for retirement just got a little sweeter. Beginning in 2013, employees will be able to contribute $17,500 a year before taxes to their 401(k)s. That’s up from $17,000 currently. While it might not sound like much, compounding interest over a 20- or 30- year period could result in a sizable sum.

The announcement by the IRS on Thursday marks the second year in a row the government agency has added $500 to the contribution limit.

However, as CNN Money notes, the catch-up contribution limit, which is the additional amount of tax-free money employees over the age of 50 can contribute to their retirement plans, on top of the $17,500 that any employee can contribute, remains unchanged at $5,500.

Along with contributions to retirement plans, which include 401(k)s, 403(b)s, most 457 plans and the federal government's Thrift Savings Plan, the agency said it will increase more than two dozen tax benefits as well, according to the network.

Among them, taxpayers will be able to gift as much as $14,000 tax-free in 2013, up from $13,000.

Also, if you're a U.S. citizen living abroad, the amount of foreign earnings you can exclude from your taxable income will rise from $95,100 to $97,600, CNN notes. Rising inflation also prompted the Social Security Administration to announce earlier this week that Social Security recipients will be given a 1.7% boost to their monthly benefits next year.